By opening up the telecommunications and internet sectors to private investors, African governments have given them the upper hand in the lucrative ... data market. If the continent is to regain control of its digital economy, countries need to rethink tax and regulatory policies, analysts argue.
Over several years, Nigeria’s traditional banks watched from afar while e-banks built successful businesses in the cloud. In 2020, Nigeria’s brick-and-mortar banks are making serious efforts to enter the online banking market.
Why it matters
The higher fees at traditional banks is among the main reasons that Nigerians have opted for online banking. Outside of major cities, customers also prefer online banking for its ease of access to financial services.
Recently, several physical banks are going head-to-head with their virtual counterparts by launching a suite of online financial services. E-banks are worried about losing customers to traditional banks which have much more experience and bigger financial muscle.
Digital banking in Africa has been a hot topic over the past decade, with some experts calling it the ‘golden age of fintech’.
Across sub-Saharan Africa, mobile money has grown by 23% in 2011, and 43% in 2017.
Kenya has been at the forefront of the digital banking revolution in Africa. 9 out of 10 Kenyans use a mobile money account. Over 60% of Kenyans own a smartphone, and over 27% of them have taken out a digital loan.
Meanwhile, Nigeria’s economy has been slowly recovering from one of its worst recessions. Coupled with rising inflation, it has stifled the ability of Nigerians to save.
Amidst the economic crisis, a series of fintechs were launched to promote saving and investment among young Nigerians, while brick-and-mortar banks watched from the sidelines.
Nigeria’s digital banks targeted semi-urban and rural customers where traditional banks had few physical branches. They encouraged customers to withdraw or receive funds on their digital platforms.
- In 2016, PiggyVest (formerly PiggyBank) began offering banking services and financial education to their clients. In 2017, CorwyWise offered a variety of services, including digital savings, investments and wealth management.
- In 2019, Kuda Bank – a digital-only bank – entered the market by offering cheap inter-bank transfers, free debit cards, and the promise of better customer service. Kuda offers 25 free bank transfers every month.
- Carbon – another digital bank – that has done well in the Nigerian market, has nowexpanded to Kenya. Carbon’s founders say they are looking to “become a pan-African digital bank”.
The fight back
Traditional banks are launching a comeback, and some observers say they will easily outcompete digital-only banks.
Standard Chartered Bank has launched a new digital bank to capture the youth market.
It is offering unlimited free bank transfers and is waiving the cost of ATM withdrawal fees. It seems to be a popular choice among younger Nigerians.
- “Standard Chartered Bank comes with years of experience and a global reputation and it can easily kick Kuda out of the market,” says Mide Akinduko, a Nigerian student.
Sterling Bank has also launched GoMoney – a new digital-only banking platform. Wema Bank launched ALAT – Africa’s first fully digital bank in Nigeria – in 2017.
However, these traditional banks are still struggling to offer similar benefits to their digital counterparts.
- “Mutual funds and loans were not available from my bank the way they were available in other apps like Carbon and Cowrywise,” said Akinduko.
According to the experts
In the end, cash and brick-and-mortar banks will remain king in Nigeria.
- “People unfairly assumed that low transfer fees were the main value proposition of these fintech platforms, however, some have had higher charges than the banks. Their main value is in their nimble approach and ease of use,” Oluwaseun Oyajumo an investment and venture analyst explained.
Many consumers have praised digital-only fintechs for addressing their concerns in the face of tough regulations. “In my opinion, the fintech startups have done a lot about the distribution of their products and easing customer pains in the past few years of existence. Their main obstacle to doing more has been relatively onerous regulations,” said Oyajumo.
Some digital banks have welcomed new entrants to the market, saying it’s possible to work together with their competitors.
- “At Cowrywise, we decided to work beyond trying to own a market, to become the underlying technology for old legacy financial institutions to meet with the new younger demographic,” according to Ajetomobi Feranmi, a brand engagement strategist at Cowrywise.
It seems likely that smaller e-banks will be swallowed up by Nigeria’s traditional banks.
“It’s inevitable that some of these startups will get acquired in the next 5 years as the banks rather than organically build innovation, buys them to acquire a new demographic of customers and technical and business innovation at the same time,” said Oyajumo.
Bottom line: E-banks are forcing traditional banks to offer better services at a lower cost to consumers. While some of these physical banks may end up buying their rivals’ e-businesses, the customer will hopefully be the winner.
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